Article Categories
» Arts & Entertainment
» Automotive
» Business
» Careers & Jobs
» Education & Reference
» Finance
» Food & Drink
» Health & Fitness
» Home & Family
» Internet & Online Businesses
» Miscellaneous
» Self Improvement
» Shopping
» Society & News
» Sports & Recreation
» Technology
» Travel & Leisure
» Writing & Speaking

  Listed Article

  Category: Articles » Finance » Article
 

5 Common Credit Score Myths




By Jack Black

Your credit score is an integral part of your financial
life. It is important that you understand what it's all
about. Lenders, landlords, insurers, utility companies and
even employers look at your credit score. It is derived from
what's in your credit reports, and it ranges between 300 and
850.

Yet, according to a survey that was recently conducted,
nearly half of all Americans don't know how these scores are
derived or even what factors are used to come up with them.

For example, if your credit score is 580 you are probably
going to pay nearly three percentage points more in mortgage
interest than someone who had a score of 720.

Or another way of looking at it, if you had a $150,000 30-
year fixed-rate mortgage and your credit score was good
enough to qualify for the best rate, your monthly payments
would be about $890. This is according to Fair Isaac, the
company that created the FICO score and who the rate is
named after (Fair Isaac COrporation). If your credit is
poor, however, it is very likely that you would have to pay
more than $1,200 a month for that same loan.

With so much depending on the credit score, it's important
to understand what it is all about and what are the things
that affect it.

Unfortunately, people commonly have a lot of misinformation
and misunderstandings about their credit score. Here are
five of the most common credit score myths and along with it
the true facts:

MYTH #1: The major bureaus use different formulas for
calculating your credit score.

FACT: The three major credit bureaus - Equifax, TransUnion
and Experian -- give the score a different name. Equifax
calls their score the Beacon credit score, Transunion
calls it Empirica and Experian gives it the name
Experian/Fair Isaac Risk Model. They all use different
names for the credit score, but they all use the same
formula to come up with it.

The reason that the credit score you receive from each
bureau is different is because the information in your file
that they base the score on is different. For example,the
records that one bureau is using may go back a longer period
of time, or a previous lender may have shared its
information with only one of the bureaus and not the other
two.

Usually the scores are not too far from each other. Unless
there is a big difference between what each bureau says is
your credit score, many lenders will just use the one in the
middle for the purpose of analyzing your application. So,
for this reason alone it is a good idea to correct any
errors that exist in each of the three major credit bureaus.

MYTH #2: Paying off your debts is all you need to do to
immediately repair your credit score.

FACT: Your credit score is mostly determined by your
past performance more than your current amount of debt. It
will definitely be very helpful to pay off your credit cards
and settle any outstanding loans, but if yours is a history
of late or missed payments, it won't remove the damage
overnight. It takes time to repair your credit score.

So definitely pay down your debts. But it is equally
important to consistently get in the habit of paying your
bills on time.

MYTH #3: Closing old accounts will boost my credit score.

FACT: This is a common misconception. It's not closing
accounts that affects your credit score, it's opening them.
Closing accounts can never help your credit score, and may
actually hurt it. Yes, having too many open accounts does
hurt your score. But once the accounts have been opened,the
damage has already been done. Shutting the account doesn't
repair it and it may actually make things worse.

The credit score is affected by the difference between
the credit that is available and the credit that is being
used. Shutting down accounts reduces the amount of total
credit available and when compared with how much credit you
can use your actual credit balances are made to seem larger.
This hurts your credit score.

The credit score also looks at the length of your credit
history. Shutting older accounts removes old history and can
make your credit history look younger than it actually is.
This also can hurt your score.

You generally shouldn't close accounts unless a lender
specifically asks you to do so as a condition for them
giving you a loan. Instead,the best thing you can do is just
pay down your existing credit card debt. That's something
that definitely would improve your credit score.

MYTH #4: Shopping around for a loan will hurt my credit
score.

FACT: When a lender makes an inquiry about your credit, your
score could drop up to five points. Some borrowers think
that if they shop around by going to a number of different
lenders that each time a lender does an inquiry it will
generate another reduction in the credit score. This isn't
true. For credit score purposes, multiple inquiries for a
loan are treated as a single inquiry, as long as they all
come within a 45 day period. So it is best to do your rate
shopping within this 45 day window.

MYTH #5: Companies can fix my credit score for a fee.

FACT: If the credit bureaus have accurate information,
there's nothing that can be done to quickly improve your
score if in fact you have a history of not handling your
debts well. The only way to have an effect on your credit
score is to show that you can manage your debts in the
future.

Also,if there are errors in your file, you can contact the
bureau yourself. You don't need to pay someone else to do
it. Each of the major credit bureaus has a website which
clearly explains what you need to do to correct an error.


So, the best ways to improve your credit score are: pay down
the debt,pay your bills on time, correct existing errors on
your credit reports in each of the three bureaus and apply
for credit infrequently.



 
 
About the Author
Jack Black has helped a lot of people with credit score
issues, including himself. So, if you are looking for
credit score information, go to his
Credit Score Source website.

Article Source: http://www.simplysearch4it.com/article/20582.html
 
If you wish to add the above article to your website or newsletters then please include the "Article Source: http://www.simplysearch4it.com/article/20582.html" as shown above and make it hyperlinked.



  Some other articles by Jack Black
Detect Spyware and Adware and Remove It Without Spending a Dime
Adware and spyware have become a world-wide computer problem from using the World Wide Web. They have turned into malware because of their viral and extremely hostile behavior. Along with the ...

Online Banking Made Easy
Here's a really simple way... to have your banking handled with no muss, no fuss... on the internet. Traditionally you have been used to doing your banking by going in to a physical brick and ...

  
  Recent Articles
Tenants With Poor Credit Even Enjoys Loan
by Turk Malloy

The UK Consumer's Guide to Shopping for Car Insurance Online
by Mary Simone

Are You Throwing Your Money Away?
by John Cranley

Easy personal loan to finance your desire!
by frank howard

Bad credit consumers can still find sources of financial assistance
by Martin McAllister

Setting up a Merchant Account
by John Tillman

Individual Voluntary Arrangement: How Does It Work?
by Martin McAllister

Stop Foreclosure - We buy houses
by Ron victor

Tax foreclosures property investment could be a nightmare investment
by mike

Spotting tax foreclosure property in USA
by mike

Making money online is virualy free
by Phill Evans

Online Criminal Background Checks: Importance & Ease
by Asel Retrac

Your Debt Free Plan for the New Year
by Cornie Herring

Invoice Factoring: An Effective Alternative For Small Businesses
by Christine Macguire

Home improvement loans: The easiest way to live in your dream home!
by reethi rai

Financial Myths vs. Financial Facts
by Gregg Elberg

Can't connect to database